Sure, the upcoming will election results will have some impact on your financial future, but nowhere near as much as the everyday spending/saving decisions you make.
By now, you have probably concluded that you cannot count on investment returns to propel you to sudden wealth or even a financially secure future. It’s a shame that we were hit with what some call a “lost decade” when it comes to growth in our portfolios. Unfortunately, that means our investment performance did not make up for inadequate amount of personal saving leaving most people with far less money than they desire for retirement and other important financial goals.
We are where we are today because of the decisions we have made in our life. Some of those decisions are large and life altering (marriage, home, job, etc.) while most are very small (what we spend money on every day), but have a cumulative effect. For example, paying for everyday items with a credit card may be a sneaky impediment to you accomplishing your financial goals. Most of my clients pay off their credit card balance every month and feel quite proud about it. I hear it all the time: “Sure, we charge things all the time, but, we pay the bill off every month”.
Does this sound like you?
How could this be a bad thing?
The reason is quite simple: People (you?) that use credit or debit cards tend to buy more “stuff” then they would otherwise if they actually spent cash. These are not usually large expenses, but many little ones that add up to hundreds or even thousands of dollars per month. For almost everyone under the age of 60 (most 60+ year old’s are more frugal and this does not apply), if they looked closely at their monthly credit card bills from last year, would hard pressed to remember what they bought with a lot of that money.
My point is that many of the items we purchase with a credit card provide little marginal value in our lives and we would not purchase them if we had to fork over cash to buy them. With the typical client, I find that if they generally have a $2,000 monthly credit card bill, at least $500 of that bill was used for marginal purchases. As a financial planner, I want to help people recapture those marginal credit card purchases and reallocate that money toward high priority goals.
For those that can’t be convinced to use cash, but would rather keep using credit cards here are a few ideas that might help:
1. Stay out of stores – don’t shop as a way of using free time
2. Shop with a list – I learned from watching my mother prepare her grocery list based on the family meal plan for the week.
3. Minimize drink orders – Drinking water with dinner is healthy and saves a bundle over time. Try asking your kids to pay for their own drinks at a restaurant and watch how little real value they place on their drink order.
4. Don’t buy online the first time you see something you like. Make yourself wait a day or so to avoid impulsive buying.
WHY BOTHER DOING ANY OF THESE THINGS?
Most people do not have nearly enough money saved for retirement!
$1 million is not enough.
Low interest rates are killing retiree’s monthly income. Ask any senior what happened to their lifestyle and many will say “I don’t make any money on my CD’s any more”. One million dollars invested in a 1.5% CD generates $15,000 per year before tax and that equates to only $1,250 per month! Not much to live on in today’s world. Maybe this knowledge will motivate you to spend less and save a little more.
How much are you on pace to have at retirement? If it’s not a crooked number in front of six zeros you may be working a lot longer than you had planned.
Even if you are not worried about retirement savings, there are probably many things you would gain more satisfaction from then most of your impulse buys.
Try leaving the credit card behind for the next 30 days and see how it changes your spending.
I guarantee the money you don’t spend will far exceed the value of any credit card bonus/miles points you may have earned over that time. Report back to me on your results if you don’t mind.
Good Luck & let me know if you would like some help with your spending/saving program.
Managing your monthly cash flow is the single most important determinant of your financial success or failure.
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